Skip to main content

The Globe and Mail

How Nouriel Roubini and David Rosenberg might debate Pollyanna

These are stories Report on Business is following Friday, Aug. 5. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

Follow Michael Babad and Globe top business news on Twitter

The Great Debate It's Friday afternoon, the end of a brutal week. So I thought rather than the real news of the day, I'd offer a fictional debate based on the real news of the day.

Story continues below advertisement

I wanted to see how the naysayers would debate the always-look-on-the-bright-side-of-life types, but the latter are in short supply. So I chose Pollyanna Whittier, the glad girl of the 1913 Eleanor H. Porter novel that spawned many sequels and a 1960 Disney movie starring Hayley Mills as the irrepressible, always optimistic heroine.

Who better to debate her than Nouriel Roubini, the professor affectionately known as Dr. Doom because he called the financial crisis in advance, and David Rosenberg, the chief economist at Gluskin Sheff + Associates who you'd think spends every weekend camping just so he can count the number of bears.

These quotes are real, taken from past comments, writings and tweets of Mr. Roubini and Mr. Rosenberg. Pollyanna's quotes are taken from the movie.

(Yes, they actually pay me to do this. Having said that, one of my editors is out of town, the other on vacation. I'm hoping they're not reading this from afar and trying to calculate the number of mindless hours involved.)

While the issues are today's, some of the comments are from weeks gone by.

Moderator: U.S. economic growth has slowed markedly, and unemployment remains high. Along with the debt crisis in the euro zone, the outlook is anything but clear. What's your take on where the economy is headed? Is it really that bad? Or should we be thankful it's not something even worse?

Rosenberg: It is evident that we will be going into another recession with the levels of output, employment and income all lower now than they were prior to the last contraction phase. I have already pegged a U.S. recession as a virtual certainty.

Story continues below advertisement

Roubini: Where are now all those in the consensus arguing last month that this was a 'temporary soft patch' and that growth would be 3.5 per cent in the second half and 2012? … Lousy GDP, depressed housing, plunging ISM, falling consumption, job losses, fiscal drag, euro zone crisis.

Pollyanna: I'm sorry about the dress … My father said it was a size too big, but that I should be glad it wasn't a pair of boy's trousers.

Moderator: What about today's jobs report in the United States? Some 14 million Americans who want to work can't find a job, many have been thrown out of their homes, and many are on food stamps.

Rosenberg: As a standalone piece of data, the jobs number was sub-par and the big picture is one of rapidly decelerating employment growth.

Roubini: Payrolls gotta rise by more than 150,000 to prevent unemployment rate from rising … Markets not buying into spin of a 'better than expected' jobs number as report was lousy: Unemployment rate down only because 200,000 left the labour force.

Pollyanna: My father always used to say that if we ever had the money you have, we'd have steak and ice cream three times every day!

Story continues below advertisement

Moderator: The markets have lost something like $2.5-trillion this week alone. What can we expect from equities, and is there a way to actually make money during this rout?

Rosenberg: The key is to be positioned appropriately for the part of the business cycle we are on the cusp of entering. In a nutshell, what that means is carefully constructed investment strategies and portfolios that preserve capital, minimize cyclical exposures, enhance yield and thereby provide for significant risk-adjusted returns - even in a recession.

Roubini: Stock market capitulation is starting as U.S. is on the verge of double-dip and euro zone crisis is critical as Italy and Spain will lose market access.

Pollyanna: About the money, I'm not supposed to be glad we're so very rich, huh?

Moderator: Are policy makers in the United States and Europe, like Fed Chairman Ben Bernanke, Treasury Secretary Tim Geithner and European Central Bank chief Jean-Claude Trichet taking the right approach to these developments?

Roubini: Everybody's kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt.

Pollyanna: He's very handsome, and he has a nice smile. But there's something... I don't know... funny about him …

Moderator: What steps might the U.S., particularly the Fed, yet take? It seems that so far these crutches haven't worked. Do we even need more stimulus?

Roubini: As I argued last year we will get QE3, then QE4 and then QE5 (the Fed, as in the 1950s, targeting the 10-year Treasury at 1.5 per cent once all else fails).

Pollyanna: You see, I'd wanted a doll, and father had written them so, but when the barrel came the lady wrote that there hadn't any dolls come in, but the little crutches had. So she sent them along as they might come in handy for some child, sometime … The game was to just find something about everything to be glad about, no matter what it was … Why, just be glad because you don't need them!

Moderator: Plans for the weekend?

Roubini: Flying off to a Maine lake on a float plane for a weekend with a bunch of smart econ/market wonks. Maine lakes. Hopefully no stall speed or double dip on this float airplane.

U.S. jobs numbers lift hopes, but not for long Today started out where yesterday left off, with an ugly mood in the markets. But you could feel the sigh of relief, and the change in the mood, with what arguably was a weak U.S. jobs report. Markets bounced around after that.

The gain of 117,000 jobs in July, and a dip in the unemployment rate to 9.1 per cent, looks better because economists had forecast less, and because the falling jobless rate was due to people giving up hope and giving up their job search.

That's not to say there weren't some good signs, only that America remains in a jobs crisis, and it's going to take a lot to fix it. On the positive side, May and June numbers were revised up, and, in July, the private sector created 154,000 jobs, which is better than the average of the prior two months.

"Overall, not a bad report, but not great either," said senior economist Sal Guatieri of BMO Nesbitt Burns.

"It will help to allay double-dip fears, though markets will remain nervous until more convincing signs of recovery emerge. We still look for a near doubling in GDP growth in Q3 from the 1.3-per-cent pace in Q2. The report could take some pressure off the Fed to undertake another stimulus program at next week's meeting."

Make no mistake, The Globe and Mail's Kevin Carmichael writes in Economy Lab, the U.S. labour market is weak.

"The employment to population rate, which is not affected by changes in the labour force, actually fell, from 58.2 per cent to a 28-year low of 58.1 per cent," said Paul Dales, senior U.S. economist at Capital Economics in Toronto.

"The bigger picture, then, is that two years after the recession ended the labour market has not really recovered at all, and may even have gone backwards. Even though immediate recession fears may fade a little on the back of this report, the key point is that the economy is still struggling and will continue to do so next year too."

As the Globe and Mail's Brian Milner, Rita Trichur, Richard Blackwell and Brenda Bouw report today, investors had begun to fear not only that the global recovery has run out of steam, but that there's little governments and central bankers can do about it.

Indeed, the debt crisis in the euro zone has run for well over a year now, and policy makers have failed repeatedly to get a grip on it amid divisions in the monetary union and what appears to be a policy vacuum. And while the European Central Bank held rates steady yesterday after raising them earlier, some observers warn its focus on inflation is only making matters worse.

The leaders of Germany, France and Spain were scheduled to talk today to discuss the market plunge.

"The ECB's fixation on inflation targeting has helped precipitate the very crisis they should be looking to avoid as investors see growth slowing and debt rising," said Mr. Hewson.

"With Europe's leaders on holiday and no chance of the [bailout fund] getting the powers it needs in time to avert a meltdown, the ECB could well be forced into cutting rates and printing money to free up liquidity to prevent another freezing up in the credit markets."

Canada's jobs market slows Canada's labour market is slowing, creating just 7,100 new positions in July. And while the unemployment rate is now down to 7.2 per cent, its lowest since 2008, that's because some people have given up looking for work and have left the work force.

Gains in full-time jobs offset the losses in part-time employment. And, on an optimistic note, the private sector created 95,000 positions. However, the public sector lost 72,000 jobs, which mean private corporations are doing all the heavy lifting. And while many observers stress the gain in private sector work, the cutbacks in the public sector shouldn't be ignored, particularly for what they mean going forward in this era of austerity.

Canada's labour market has rebounded from the depths of the recession at a far faster pace than in other countries. In the past year alone, for example, some 252,000 jobs have been created. Still, the jobless rate is forecast to remain above the 7-per-cent mark for some time yet.

The private sector has now added more than 240,000 jobs in the past 12 months. That's a gain of 2.2 per cent, compared to a rise of just 0.9 per cent for the public sector.

Of concern, said Karen Cordes Woods and Derek Holt of Scotia Capital, is the slowdown in wage growth in July to just 1.4 per cent, which is negative after factoring in inflation.

"Forget small month-to-month changes in the jobs tally compared to 17.3 million employed individuals," they said.

"What matters is that on average, the Canadian worker isn't keeping his head above water as she pays more for basic staples like gasoline and groceries over time. That is a bearish guide for consumption just as it has been on disappointing consumption figures throughout 2011."

Magna profit slips Canada's Magna International Inc. posted a dip in second-quarter results, although it sales surged.

The continent's biggest auto parts producer earned $282-million (U.S.) or $1.15 a share in the quarter, compared to $294-million or $1.30 a year earlier. Sales, though, climbed almost 25 per cent to $7.3-billion.

Among other reasons, the parts giant cited higher input costs for its sliding profit.

"Operational inefficiencies and other costs, in particular at our exteriors and interiors systems business in Europe, higher commodity costs, new facility costs incurred to support our growth around the world, as well as the favourable settlement of certain commercial items during the second quarter of 2010 were the primary factors behind the decrease, more than offsetting the operating income earned on the increased sales in the second quarter of 2011 combined with the net positive impact from the unusual items in the second quarters of 2010 and 2011," it said.

Telus gains Telus Corp. today posted robust second-quarter results, boosting profit by more than 7 per cent as it benefited from stronger than expected smart phone growth, Globe and Mail telecom writer Iain Marlow reports.

The Vancouver-based wireless provider also raised its outlook on the positive results and boosted its dividend by 55 cents, providing investors with welcome relief after earlier earnings reported by Rogers Communications Inc. and BCE Inc. underwhelmed the Street.

Profit climbed to $324-million or 99 cents a share, from $302-million or 94 cents a year earlier. Revenue rose more than 6 per cent to $2.55-billion, as the company increased the amount of cash flowing in from customers using smart phone data plans.

TMX slips Its failed merger with London Stock Exchange Group PLC cost TMX Group Inc. dearly in the second quarter, helping push down profit because of the costs involved.

TMX said today it earned $54.7-million or 73 cents a share, down from $58.4 or 79 cents a year earlier. It chalked up almost $21-million in costs related to the merger, which fell apart after a group of Canadian banks, pension funds and others spoiled the party with a rival bid.

To hear chief executive Thomas Kloet tell it, you almost wouldn't know that a big merger collapsed:

"There have been many significant accomplishments on the operational and financial front to date this year. Among the successes in this past quarter was renewed momentum in our listings business. On a combined basis, new listings on Toronto Stock Exchange and TSX Venture Exchange were up 33 per cent and the value of new equity financings on TSX Venture Exchange increased 84 per cent compared with the second quarter of last year. We are also proud that Toronto Stock Exchange reached over 200 exchange traded products listed in June. We launched the world's first exchange traded fund over 20 years ago and remain a leading destination for innovative listed products worldwide. We continue to see strong growth in derivatives as volumes on the Montréal Exchange reached another new quarterly record with 16.3 million contracts traded."

In International Business today Is the commodities boom over? The fundamentals still look robust, but the economic outlook is deteriorating rapidly, particularly in developed countries. Javier Blas of The Financial Times reports.

In Economy Lab today The most recent issue of Journal of Economic Psychology contains an article by Menelaos Apostolou entitled "Why do men collect things? A case study of fossilized dinosaur eggs." Frances Woolley looks at why that matters.

From today's Report on Business

Report an error
About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

Comments are closed

We have closed comments on this story for legal reasons. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.